1. Check21 The Check Truncation Act of the 21st Century

2. Important Check21 Information for all Business Checks Users

3. By now, you may have heard about the Check Clearing for the 21 Century Act, better known as Check21. It becomes effective October 28, This presentation is designed to help answer many of the questions you may have on how this new legislation will affect the negotiable documents you currently use.

4. What is Check21?
Check21 allows (but does not require) any financial institution in the check clearing chain to “truncate” any check and covert it to an electronic Image. “Truncate a check” means to remove an original paper check from the check collection or return process and replace it with an electronic image.

5. Example of the process of converting an original check to an electronic image.
Grayscale Image
Areas of Interest Analysis
Stored Binary Image

6. Check21 Why was Check21 Created?
The goal of this legislation is to help improve the overall efficiency of our nations’ payment system. Check21 was designed to reduce the time, risks and costs associated with paper check processing. It was also designed to make it less susceptible to uncontrollable delays caused by weather, natural disasters or other disruptions in the national transportation system.

7. How will Check21 impact companies?
Check processing will be faster (with the implementation of Check21) if a bank or financial institution sends an electronic image in place of the physical document. Funds may be removed from your account sooner than in today’s system; therefore, there may be less “float time.”

8. How could this change the way Checks are processed?
Let’s examine the current payment processing system and also take a look at what the future may bring.

9. Check21 – Current Check Payment System- Original check is physically transported
Merchant - Lockbox
Depository Bank
Cash Letter and Physical Checks
Paying Bank
Statement
Collecting Bank
Customer

10. Check21 –Future Payment System- Original check is converted into an electronic image and the image is transmitted/processed.
Merchant / Branch Truncation
Transmit Electronic Cash Letter
Transmit Image of Check
Depository Bank / Reconverting Bank
Electronic Statement
Transmit
Electronic Cash Letter
Paying Bank
Collecting Bank / Image Exchange

11. What happened on October 28,th 2004?
It all depends on the individual bank/financial institution:
If a bank in the check clearing chain agrees that they will accept an image, an image can be sent.
If the next party in the clearing chain doesn't agree to accept an image, a Substitute Check is created and processed.(See following slide on Substitute Checks)

12. What happened on October 28,th 2004?
On the check that a customer writes the payer bank:
May receive the original check back.
May receive a copy of an image.
May receive a substitute check.

13. What is a Substitute Check?
A substitute check is a paper reproduction of the image of the original check that:
Banks create when they cannot process the electronic image. Essentially, the image is converted back into a paper check.
Contains an image of the front and the back of the original check.
Bears a MICR number line containing all the bank account information from the original check.
Shows the routing and transit number of the truncating bank and the bank creating the substitute check.

14. Example of Substitute Check
Front
Back

15. What does it mean if your negotiable documents are “Check21 Compliant”?
The main standard that is to referred to in the Check21 Legislation is the American National Standards Institute ANSI X9.7 voluntary standard for image readiness. This standard list ways that printers can design checks that can be easily imaged.

16. What needs to be done to make a document Check 21 Compliant?
Remove any interference in the Area’s of Interest (AOI) on a check.
AOI-the area on a check that contain the critical information needed for imaging. These area’s include the Date, Payee, Legal Amount, Signature Lines and the MICR number area.
File Size below 90K. File size is the amount of electronic storage space it takes for a bank to store the image of the Original Check.

17. What can interfere with the Area’s of Interest (AOI) on a check?
Any kind of clutter that remains after a check is scanned and converted to an image. This is measured in units of Pixels and Paxels. If a check is scanned and a portion of the printing in AOI does not drop out it may cause a problem and interfere with the banks ability to pull information off the check.

18. What can interfere with the Area’s of Interest on a check?
Small Pixels that remain
are no problem
Single Paxels(Group of
Pixels) are also no problem
Paxel Strings cause a
legibility problem
Note-strings of Paxels that remain after scanning also increase the file size of a document.

19. What are banks/financial institutions doing to enforce Check21 image standards?
Since Image Ready ANSI X9.7 Standards are voluntary only 5% of all banks in the U.S. are expected to adopt this standard in Most banks were not requesting Image Ready standards from their customers at this time. Some larger banks (example-Wells Fargo) may begin to suggest to their customers that they redesign their check to image ready standards.

20. Fact or Fiction
Lets review common misconceptions that you may have received from your bank/financial institution or other sources about Image Guidelines for Checks.

21. CHECK21 COMPLIANCE IS MANDATORY
Fact or Fiction
CHECK21 COMPLIANCE IS MANDATORY
FICTION
Check21 does not mandate the electronic processing of check images, it simply allows for it to happen. Most financial institutions did not have the equipment or the training to begin exchanging images starting October 28, 2004.

22. CHECK21 WILL REDUCE THE NEED FOR CHECKS.
Fact or Fiction
CHECK21 WILL REDUCE THE NEED FOR CHECKS.
FICTION
Check21 will not affect the need for an original check to be presented. It legislates what can happen to that check once it is presented for payment.

23. Fact or Fiction FICTION
CERTAIN INK COLORS (dark blue, black, dark green and other dark colors) ARE NOT CHECK 21 COMPLIANT
FICTION
As long as your check background drops out when imaged and complies with the ANSI X9.7 Standards it does not matter what color ink the check is printed in.

24. CHECKS MUST ONLY CONTAIN SECURITY FEATURES THAT SURVIVE WHEN SCANNED.
Fact or Fiction
CHECKS MUST ONLY CONTAIN SECURITY FEATURES THAT SURVIVE WHEN SCANNED.
FICTION
Check Security features that survive when scanned such as Warning Borders, Chemical Reactive paper, and Back Printing are important. It is also important to incorporate hidden features built into the paper such as artificial and true watermarks as well as “VOID” (hidden word) technology. A combination of visible and hidden features are the best way to deter fraud.

25. Fact or Fiction
YOUR CHECKS WILL NO LONGER BE ABLE TO USE A SECURITY “VOID” BACKGROUND?
FICTION
VOID backgrounds on your checks are very important to deter against fraudulent copying and scanning. Current hidden word or void technology is available that does not interfere with the Area’s of Interest on a check.
Removing the VOID feature only makes it easier for a criminal to fraudulently copy/scan your checks.

26. How can we support your Check21 needs?
Upon request, we can test any repeat or new check order at NO CHARGE to verify if it is Check21 Compliant. Our manufacturing partner has the equipment and procedures in place nationwide to accommodate your testing needs.
If changes are needed we will provide you with recommendations on how to make the document Check21 Compliant.
We will provide a proof on any repeat job that needs changes to become Check21 Compliant.
ANSI Certified RDM Image Qualifiers are used to test documents for compliance.

27. Why don’t check providers automatically change all check orders to be Check 21 Compliant?
Check21/ANSI X9.7 standards for Image Ready Documents are voluntary. Most banks are not requiring check image standards from their customers.
To make your checks compliant, it may require changes that might slightly change the look of your documents. We would like you approve these changes prior to manufacturing the order. Our goal as always it that we produce a product that will meet and exceed your requirements.

28. What common items on a check may need to be changed to become Check21 Compliant?
Check Backgrounds- Need to drop out when scanned by the bank. All ink colors are approved.
Areas’ of Interest on a check must be free from clutter (No reversed headings). This includes the following area’s:
Legal Amount Field
Date Filed
Convenience Amount field
Signature Area
MICR Area- 5/8” Clear Band preferred.
Maximum File Size - the check when scanned must be below 90K.

29. How to request a order be made Check 21 Compliant
Prominently mark your purchase order “Make Check21 Compliant” or contact your business document specialist. You will be contacted if changes are required.

30. THANK YOU FOR YOUR BUSINESS!